November 23, 2015
By Bob Coleman
Editor, Main Street Monday
Main Street Monday — 76% Disapprove of Pending CFPB Minority-Status Small Business Lending Regs
Thus, 24% approve of the Consumer Finance Protection Board’s pending minority-status data collection requirements by small business lenders.
Sixty readers responded to my simple poll question of, “Is this a good thing?” Thanks to all who submitted your comments.
Here is a well-written PRO argument:
Access to capital for the minority business sector of the US economy has historically been underserved. According to the latest research provided by numerous authoritative sources i.e. U.S. Department of Commerce, Minority Business Development Agency, Federal Reserve, Small Business Administration, access to traditional capital sources are not as available to the minority community as compared to the general community of non-minority applicants.
The reasons are as varied as the number of community groups designated as “minority”. In some cases, denial of credit is the same for minority as for non-minority applicants such as poor credit scores, inability to service debt, inadequate or no collateral, highly leveraged and a lack of personal or business equity capital to leverage a business venture.
But in too many instances, denial of credit when mitigating factors may be in place often fall short for the underserved than for the non-minority applicant. Bankers and lenders often do not mirror the community in which they serve. These non-minority lenders tend to be more lenient and employ mitigating credit factors to the applicants who look like them.
If Dodd-Frank can encourage lenders to be more sympathetic to loan applicants in the minority community, I am all in favor of this piece of enforcement. But I seriously doubt that it will make a significant change as long as there is one segment of the population granting (or denying) the applications of a segment of the population in which the lenders do not identify.
And, here is a sample of the thoughts behind the NAY comments:
Either you qualify for a loan or you don’t; it has nothing to do with minority status. We are in the business to lend, we want people to qualify; in 20 years of lending, I’ve never seen someone denied a loan based on minority status.
Lending decisions should always be based on current or potential viability of the small business applicant, not on the gender or skin color of the owner.
We’re not supposed to make decisions based on these factors, but then we’re asked to track this data.